expensewas$3,320million.Weassumedanamortizablelife
offiveyearsforitsresearchefforts,someofwhicharebasic
and some of which are directed at more commercial
applications. The second step in the analysis is collecting
researchanddevelopmentexpensesfromprioryears,withthe
numberof years ofhistorical databeing a functionof the
amortizable life. The following table provides this
information for the firm.
Year R&D Expenses($ millions)
Current (2005)3,320
−1 (2004) 3,192
−2 (2003) 3,135
−3 (2002) 3,448
−4 (2001) 3,922
−5 (2000) 2,704Theportionoftheexpensesinprior yearsthatwouldhave
beenamortizedalreadyandtheamortizationthis yearfrom
each of theseexpenses is considered.To make estimation
simpler,theseexpensesareamortizedlinearlyovertime;with
afive-yearlife,20%isamortizedeachyear.Thisallowsusto
estimate thevalueof theresearch asset createdateach of
these firms and the amortizationof R&D expenses in the
current year. The procedure is illustrated in the following
table: